After several weeks of falling stock markets turned to growth, investors started active purchases, but is everything so calm?
On Monday, the Financial Conditions Index, calculated by investment bank Goldman Sachs, crossed the 50-day moving average upwards. This event could be a wake-up call for the markets. For example, on February 24, 2020, the Index’s rise above the average anticipated a collapse in the US and global equity markets.
Financial Condition Index
Source: Goldman Sachs
During April-August, financial conditions for market participants improved and reached multi-year lows on September 2. However, after that, the Index began to grow, which indicates a worsening of the situation.
If the Index manages to gain a foothold above the 50-day average for several days or if its growth continues, then this will be a clear signal for the continuation of the correction in the financial markets. Perhaps this time it will be smoother and with frequent rollbacks.
In addition, it should be noted that the High Yield Bond Index continued its decline yesterday, despite the upward dynamics of the markets. Moreover, this indicator is very close to the 50-day moving average.
High Yield Bond Index
Thus, a borderline situation has now formed. If the indicators continue their negative dynamics, then the likelihood of a fall in world markets will significantly increase.
Therefore, be careful about buying out drawdowns and keep watching Indices as leading indicators.
- High Risk Bond Index
- Spreads between junk and US government bonds